March 18, 2008

Builders must comply with building codes; Parties may contract for standard of workmanship, which negates implied warranty; Cost of repair preferred

ROGER WILKES, ET AL. v. SHAW ENTERPRISES, LLC (Tenn.Ct.App. March 17, 2008).

The principal issues presented by this appeal of a residential construction dispute between a contractor and the homeowner are (1) whether the standard of workmanship required of the contractor by the chancellor was correct and (2) whether the proper measure of damages was applied. The chancellor found that some of the house construction was defective, but that the cost of repair of the defects was excessive and disproportionate. The chancellor held that the proper measure of damages was the diminished value of the house and awarded damages on that basis. We affirm in part, reverse in part and remand for proof of the contractual workmanship standard of "good building practices" and for proof of the diminished value of the home.

Court opinions may be found at the TBA website:

"The Wilkes contend that state law requires compliance with the building code. We agree. Tenn. Code Ann. § 5-20-102 provides that the governing body of any county may adopt by reference a specific building code, which serves as the enforceable building code in the county. Tenn. Code Ann. § 5-20-102; see also Tenn. Code Ann. §§ 5-20-101-106. ... Mr. Hatch’s office was charged with ensuring the houses were constructed in accordance with the 1995 CABO Code." Id.

"In an earlier case, however, this Court stated, “in the absence of express plans and specifications, the standard of workmanship prevailing in the area coupled with conformity to the applicable codes ... is the standard by which the appellee’s performance is to be tested.” Carter v. Krueger, 916 S.W.2d 932, 935 (Tenn. Ct. App. 1995). ... However, the language of the contract provides that “Seller agrees to erect the house in substantial accordance with the plans and specifications selected and in accordance with good building practices.” (emphasis added). ... Accordingly, the standard set out in Carter v. Krueger, supra at 935, does not apply because the parties contracted for a specific standard." Id.

"Ordinarily, the implied warranty standard set out in Dixon would apply where there is no warranty. However, the Supreme Court has provided that “[t]his warranty is implied only when the written contract is silent.” Id. at 541-42. In line with the Supreme Court’s reasoning, the specific standard provided for in the contract prevails over the implied standard of workmanship because the contract is not silent on the issue of the standard to which the contractor will be held." Id.

"Generally, courts have assessed two types of damages for breach of a construction contract – “cost of repair” or “diminution in value,” also referred to as “difference-in-value.” ... “Generally, the measure of damages will be the cost [of] repair unless the repairs are not feasible or the cost is disproportionate to the [diminution] in value.” GSB Contractors, Inc., 179 S.W.3d at 543 (citations omitted). In a case where the cost of repairs is “disproportionate when compared with the difference in value of the structure actually constructed and the one contracted for, the diminution value may be used instead as the measure of damages.” Id. at 543 (quoting Redbud Cooperative Corporation v. Clayton, 700 S.W.2d 551 (Tenn.App.1985))." Id.